COMPANY FORMATION IN DUBAI - UAE

COMPANY FORMATION IN DUBAI – UAE

 

An Indian company or Entrepreneurs intend to incorporate a company in the UAE can choose to set up operations as a branch, representative office or registered company, or it can appoint a commercial agent to sell its products in the UAE market or export them. New companies can also choose to conduct their activities from a Free Zone, which is a designated, self-regulated area set up to catalyse economic activity within an emirate and is governed by its own set of rules and regulations. There are around 40 Free Zones in the UAE, with more under development.

Foreign ownership restrictions are contained in the Commercial Companies Law (CCL), which requires that UAE nationals or their wholly owned companies hold a minimum of 51% of the shares of all companies established in the UAE. The CCL provides for the establishment of the following business entities for foreign investors: joint stock companies (JSC), limited liability companies (LLC), unincorporated joint ventures and branch offices of foreign companies. The CCL does not apply to companies that are established in the free zones.

 

It is important to have a full understanding of your options before deciding how to establish your company’s presence in the UAE. Overall growth for your company in the UAE can be hampered by making the wrong choice, so consider the following points when deciding the best structure for your needs.

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Company Incorporation in Free Trade Zone UAE (Dubai)

The main attractions of establishing an entity in one of the UAE’s Free Zones is that there are no foreign ownership restrictions and companies are governed by an independent Free Zone Authority (FZA), which is responsible for issuing operating licences and regulating the activities of companies within the Free Zone.

 

The UAE is now a major business hub and ideal for setting up a business or a representative office, there are now over 40 different “Free Trade Zones” in the UAE so identifying the best Free Zone through which to conduct business in the region can be a tedious task. It is also a common misconception that a Free Zone Company is an offshore company, however, in spite of their similarities; they do also have very differing characteristics.

 

In addition to enabling shareholders, directors and employees to obtain residency visas in the UAE, the benefits of a Free Zone include:

  • 100% foreign ownership (no requirement for a local partner/sponsor);
  • 100% repatriation of capital and profits;
  • 100% corporate and personal income tax exemption;
  • Absence of currency restrictions;
  • Wide variety of licensable activities;
  • Abundant and inexpensive energy;
  • Modern, efficient communications;
  • Logistic efficiencies due to business cluster effect;
  • Serviced desks and offices for SMEs and start-ups;
  • Excellent support services.

The nature of the business activity that you intend to carry out will have a big influence on selecting the Free Zone to meet your requirements. The principal Free Zones and their licence activities include:

  • Dubai Multi Commodities Centre (DMCC) – Commodities Trade and Exchanges;
  • Jebel Ali Free Zone (JAFZA) – Trading, General Trading, Service, Logistics and Industrial;
  • Dubai International Financial Centre (DIFC) – Banking, Financial Services and Legal;
  • Dubai World Central (DWC) – Aviation, Logistics, Light industry and Ancillary Services;
  • Dubai Knowledge Park (DKP) – Human Resources Management, Training and Personal Development;
  • Dubai Internet City (DIC) – Internet and Communications Technology;
  • Dubai Media City (DMC) – Media related activities;
  • Dubai Silicon Oasis (DSO) – Information Technology, Telecom, Electronic and Engineering
  • Dubai Healthcare City (DHCC) – Healthcare, Medical Education and Research, Pharmaceuticals and Medical Equipment;
  • Ras Al-Khaimah (RAK) – Trading, General Trading, Service, Industrial and Educational;
  • Fujairah Creative City (FCC) – Media, Consulting, Communications, Design and Technology.

You can either register a new company in the form of a Free Zone Establishment (FZE) or a Free Zone Company (FZC) – an FZE has one shareholder and an FZC has two or more – or simply establish a branch or representative office of their existing or parent company based within the UAE or abroad. An FZE or FZC is a limited liability company governed by the rules and regulations of the Free Zone in which it is established. The provisions of the UAE Commercial Companies Law (CCL) do not apply.

 

In order to begin the process of setting up a Free Zone Company, we will require the following documentation and due diligence from all shareholders/directors of the proposed new company:

  • Certified Passport Copy and UAE Visa/UAE entry stamp (if non-resident)
  • 2 x Proofs of Address (dated within 3 months)
  • Bank or Professional Reference Letter
  • Curriculum Vitae (summary of professional history)
  • Company Application Form (which we will provide)

 

Please note that some Free Zones may request a detailed business plan, depending on the business activity of the proposed new company. Sovereign has a variety of templates in order to assist you.

 

Once a legal presence has been established in a Free Zone, the business will need to lease premises or land and acquire an operating licence from the FZA. Different types of licences apply in the different types of free zone. Companies with trade and industrial licences can only conduct business within the Free Zone or abroad. To sell products in the UAE, a UAE official agent is required, and a joint venture needs to be formed.

FAQs

Why set up a Free Zone Company? Would an Offshore Company be easier to set up and serve the same purpose

=> A Free Zone Company is more expensive than an Offshore Company and it typically takes 4 to 6 weeks to establish. However, it is an onshore company (with some offshore characteristics). This type of company is ideal for market entry because it will give you the physical presence in the UAE through office space and visas without the need for a local sponsor. A Free Zone Company has offshore characteristics in the sense that all business needs to be carried out offshore/internationally or within the Free Zone itself.

 

As it is an onshore company, will I receive a licence once the company is incorporated?

=> Yes, all Free Zone companies have a trade licence reflective of their business activity. It is possible to obtain licences for Trading, Manufacturing, Industrial, Consultancy and Services activities and, as mentioned above, most Free Zones specialise in a particular sector.

 

Can I carry out business anywhere with a Free Zone Company?

=> No, you can only carry out business internationally (outside the UAE) or within the Free Zone itself. You are not allowed to carry out any business on the mainland of the UAE. If your target market is mainland UAE you will need to establish a UAE Onshore Company with a local sponsor. Sovereign can also assist with this.

 

Are there any restrictions on business activities?

=> Yes. Depending on the nature of business, some external approvals may be required from certain Ministries or regulatory authorities for particular activities. For example, an investor looking to set up an educational or training practice may be required to seek approvals from the Knowledge and Human Development Authority (KHDA). If there are no external approvals required, the Free Zone Authority will carry out its own review of proposed business activity during the incorporation process.

 

What are the statutory requirements of a Free Zone Company?

=> Each Free Zone has its own governing authority so requirements vary from Free Zone to Free Zone. However, the majority follow a similar framework. There are two types of companies you can establish in the Free Zone and they are a Sole Establishment (FZE) with one shareholder and a Free Zone Company (FZC) where there are two or more shareholders. Both individual and corporate shareholders are allowed.

 

A manager must be appointed for the company and this person will be responsible for the day-to-day running of the company and is generally responsible for the operation of the bank account and the signing of any contracts on behalf of the company. For any changes that are made to the company structure, the manager will be required to sign off. The manager must be a UAE resident or have the intention of taking up residency.

 

How many residency visas will I be allocated?

=> That will generally depend on the type of office/premises selected. Between 2 to 3 visas will generally be allocated for a Virtual Office/Flexi-Desk option, while the size of a physical office space will dictate how many visas are allocated (generally 1 visa per 10sq. /m).

 

Is it possible to obtain a Tax Residency Certificate for the Company?

=> It is possible to apply for a Tax Residency Certificate for a Free Zone Company and this can be extremely beneficial if the intention is to utilise the UAE’s network of double tax treaties.

Offshore Company Formation in UAE (Dubai)

Offshore Companies in UAE should not be confused with UAE Free Zone companies. An Offshore Company is a legal business entity that is set up with the intention of operating outside its registered jurisdiction and/or the location of its ultimate ownership.

 

There may be many reasons to register an Offshore Company, but the general benefits of utilising an offshore corporate structure include:

  • Providing a gateway for international market expansion;
  • Access to a stable and business-friendly legal system;
  • Access to a more flexible regulatory regime;
  • Offering tax neutrality on international earnings in respect of (depending on jurisdiction) personal or company income, capital gains and inheritance taxes;
  • Offering better access to global funding;
  • Providing a vehicle to separate or protect assets, such as Intellectual Property, from operating entities.

 

The two principal jurisdictions offering Offshore Companies in the UAE are Ras Al Khaimah (RAK) and the Jebel Ali Free Zone (JAFZA). Both are “tax free” jurisdictions that levy no income tax or corporate tax and permit 100% foreign ownership. The UAE has Double Tax Treaty agreements with over 40 other countries.

 

Offshore Companies are permitted to open multi-currency accounts in the UAE and carry out business internationally. They may not, however, carry on business with persons resident in the UAE or have physical premises within the UAE.

 

Both RAK and JAFZA have their own specific benefits. RAK is the more cost effective of the two, but JAFZA is the only Offshore Company that is legally permitted to own property situated in Dubai.

 

UAE Offshore Companies should not be confused with UAE Free Zone Companies. Free Zone Companies are onshore entities permitted to carry out business in Dubai with certain restrictions. They are similarly subject to the 0% rate of corporate tax but they enable their shareholders, directors and employees to obtain residency in the UAE.

 

As a matter of local company law, both RAK International Companies (RAK ICs) and JAFZA Offshore Companies MUST appoint an approved registered agent (Sovereign Corporate Services is approved for this purpose).

JAFZA Offshore Company Incorporation

The JAFZA was created in 1985. It is an industrial area surrounding the Jebel Ali Port, one of the world’s biggest shipping ports, which allows the international companies based there to enjoy the special privileges of the free zone. These include exemption from corporate tax for 15 years, no personal income tax, no import or export duties, no restriction on currency, and easy labour recruitment.

 

Jebel Ali is located just outside Dubai and is about an hour’s drive from Abu Dhabi, the UAE’s capital city. Al Maktoum International Airport, which is planned to be the largest airport in the world in both freight and passenger volume, is constructed just outside the port area.

 

The Jebel Ali Free Zone Authority (JAFZA), in conjunction with the Dubai Government, introduced the Offshore Company in 2003 under the Jebel Ali Free Zone Offshore Companies Regulations 2003.

 

Key features of a JAFZA Offshore Company:

 

 A) Shareholders – A minimum of one shareholder is required and corporate shareholders are permitted. International corporate shareholders are required to have all company documents attested;

 B) Directors – A minimum of two directors are required and corporate directors are not permitted. Details of directors are not available on the public register;

 C) Secretary – Every company must have a secretary. A company director may also act as company secretary;

 D) Share Capital – No minimum share capital requirements;

 E) Annual Reporting – Every company must keep accounting records for 10 years from the date of preparation. The company must appoint an auditor (from an approved list) to examine and report on accounts.

 

Key benefits of an offshore company registration in JAFZA:

 

 A) 100% Foreign Ownership – The JAFZA Offshore Companies Regulations require no local shareholding;

 B) Local Real Estate Ownership – The JAFZA Offshore Company is the only offshore company that is permitted to directly own local Dubai real estate. Most properties in Dubai can be owned by JAFZA offshore companies but both Free Zone and developer approval are required;

 C) Shares in Local Companies – Despite a general prohibition on Offshore Companies conducting business with persons resident in the UAE, the authorities do allow Offshore Companies to hold the shares of both Free Zone and Onshore (LLC) Companies. Documents for use in the UAE, Bahrain, Saudi Arabia and Qatar do not need to be attested;

 D) Local Bank Account – An Offshore Company can hold multi-currency bank accounts in the UAE to carry out routine international transactions;

 E) Shareholder/Director details – The names of shareholders and directors do not have to be disclosed on a public register;

 F) Inspection – The registrar has the power to appoint inspectors to investigate the affairs of an Offshore Company. The owner of the company may be liable for all inspection fees.

RAK Offshore Company Formation

Ras al Khaimah, situated approximately an hour’s drive from Dubai, is one of the fastest growing of the seven Emirates that form the UAE. RAK has the highest level of industrialisation in the UAE, with manufacturing at 26% of the GDP. It has built its reputation on a business-friendly investment environment and competitive costs. The cost of doing business in RAK is 25 to 50% lower than the UAE average, allowing companies to maximise their return on investment.

In September 2006, the Ras al Khaimah government launched the International Company structure, also known as the RAK Offshore Company. These are regulated under the Ras Al Khaimah Free Trade Zone Authority International Companies Regulations 2006.

 

Key features of a RAK Offshore Company:

 

 A) Shareholders – A minimum of one shareholder is required and corporate shareholders are permitted. International corporate shareholders are required to have all company documents attested;

 B) Directors – A minimum of one director is required and corporate directors are permitted. Details of directors are not available on the public register;

 C) Secretary – Every company must have a secretary. A company director may also act as company secretary;

 D) Share Capital – No minimum share capital requirements;

 E) Annual Reporting – Every company must keep accounting records for 7 years from the date of preparation. The accounts do not however have to be filed with the RAK authorities.

 

Key benefits of opening a RAK offshore company:

 

 A) 100% Foreign Ownership – The RAK International Company Regulations require no local shareholding.

 B) Shares in Local Companies – Despite a general prohibition on Offshore Companies conducting business with persons resident in the UAE, the authorities do allow Offshore Companies to hold the shares in both Free Zone and Onshore (LLC) Companies. Documents do not need to be attested for use in the UAE, Bahrain, Saudi Arabia and Qatar;

 C) Local Bank Account – An Offshore Company can hold multi-currency bank accounts in the UAE to carry out routine international transactions;

 D) Fast Incorporation – RAK IC company registration will typically take 1 week after receiving all application and due diligence documentation;

 E) Shareholder/Director details – The names of shareholders and directors do not have to be disclosed on a public register.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Documents required for Offshore Company set-up in UAE from all shareholders and directors:

  • Certified Passport Copy (by Lawyer/Accountant/Sovereign Employee)
  • 2 x Proof of Address documents
  • Bank or Professional Reference Letter
  • Curriculum Vitae (summary of professional history)

 

FAQs

How long will it take to register a UAE Offshore company?

=> It takes approximately 1 week to register a RAK IC after Sovereign receives all of the necessary registration documents from all shareholders and directors of the new company. A JAFZA Offshore company will take approximately 4 weeks to register.

 

Am I required to visit the UAE to register a UAE Offshore Company?

=> There is no such requirement for registering a RAK IC. However, for a JAFZA Offshore Company, the shareholders and directors are required to sign in the presence of the authorities in Jebel Ali.

 

Is it possible to obtain UAE residency visa through a UAE Offshore company?

=> No. Only Free Zone and Onshore Companies can offer UAE visas.

 

Can an offshore company lease office space in the UAE?

=> No. However, each company must have a registered address and can use this address to receive mail and perform other secretarial services. Sovereign can provide these services as a company’s registered agent.

 

Am I required to have my bank account located in Dubai or can I have an international account?

=> UAE offshore companies are typically incorporated in order to utilise the local banking services and 0% rate of tax. However, it is possible for these companies to have accounts elsewhere in the world. Sovereign has many international banking relationships worldwide and can provide the necessary introductions.

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